We have a Brexit Vote. So What Happens Now?

We have a Brexit Vote. So What Happens Now?

by David Rae, Russell Investments

Earlier today, the results of the UK referendum on European Union membership were announced: the UK will leave the EU. This historic moment brings to an end the referendum process, but heralds a new chapter of uncertainty for the UK and the EU.

With the British public voting to exit the EU, we believe the following:

1. The implications for the UK and Eurozone will be prolonged and, at this point, are hard to predict.
2. Unsurprisingly, this news will be a catalyst for further market disruption. However, there are many other significant issues driving global volatility, too.
3. When market reactions are out of line with fundamentals, the ensuing volatility creates a potential opportunity for nimble investors to add value.

Expect more volatility.

Our Global Market Outlook for 2016 was dominated by expectations of heightened market volatility with no clear direction for markets generally. Today’s Brexit vote result does nothing to alter that expectation. Global economic conditions, high asset valuations, and the progress towards the U.S. election in November will all likely contribute to volatility through the second half of the year.

Manage risk dynamically.

To invest in this environment, we continue to believe in a dynamic approach, reacting to market events to “sell the rallies” or, where appropriate, “buy the dips.” Identifying the signals in the noise requires a disciplined approach. After a multi-year bull market for equities and risk assets, risk management has been, and will continue to be, paramount in protecting returns. Across multi-asset portfolios, our belief is that this is achieved through diversification, particularly away from pure equity risk and through the use of options to structure a more attractive risk/reward pay-off.

Look for opportunities.

Over the coming days and weeks, as markets turn their attention to other events, volatile market conditions are likely to remain. Our investment strategist and portfolio management teams continue to identify ways to both manage risks and, just as importantly, look for opportunities to add value, especially where market reactions are out of line with our fundamental expectations.

For more details, please read our Global Market Outlook.